Yes, they really are Two Americas.

Some weeks ago we had lunch with a high income high net worth person who had been introduced to us with the idea they might want to consider doing stock and bond investing and trading our way  

The lunch conversation was about how smart investors and traders survey the financial and political environment and do not try to change it,  but rather take advantage of it. Simply put the country is becoming more and more divided between those who are upper middle class and above and those who are lower middle class and below.  There are less and less people in the once largest American class the true middle class.  This is the result of decades of public education doing a worse and worse job of educating the middle class on how to achieve the once wonderful American Dream of financial security at some point in their lives.  In has been further pushed by the erosion of a common core of values held by most Americans. The results of this downsizing of the American Dream is clearly shown in Friday's jobs report where despite being hailed by many as great the truth is we continue to replace full time higher pay jobs with part time and lower paid positions.  All this is being embedded into place by current political economics and financial engineering. 

Thus we have a situation where there is less hope to improve one's life and even less desire to do so. However for those who have made the jump to the shall we call it "good life" the opportunities to keep that way of life are quite numerous and most rewarding financially.  We have long opined here that with Obama the federal government has embedded in many Americans the desire to just accept what crumbs of money and goodies the government gives you plus  maybe some part time with no future employment as something everyone in the lower middle class and below should be just happy with and be quiet.  On the other hand these same political policies that involve lots of deficit spending have lead to the situation where those who have made it in this country along with the financial engineering by the Federal Reserve of low rates which enable mega sized corporations to pay good dividends and buy back stock make the upper class richer by the day.  Those in the upper middle class and above see the federal government largess under Obama as being nothing more than throwing some candy to the masses to keep them quiet, while the better off dine out well, drive fine cars, and vacation at their beach homes. 

This is not the way it should be or has been in America, but until someone pulls the plug on this arrangement at the ballot box and in their daily living values it will not change.  As I said to my lunch person "it IS what it IS whether you like it or not and only fools do not invest and trade with the flow." There are days now when we wonder if America has finally jumped the shark and can never find the American exceptionism that once made us the land of opportunity for anyone who wanted to try.  We have traded equal opportunity for equal misery, unless you happen to be blessed to be in the priviledged class. Most days now we consider ourselves blessed we are not in the bottom group. Most days too we wish we knew how to change the dynamics to the way it was when everyone had a good paying job with a future and the chance to move up in lifestyle and leave a better American for their children.  But until that day when the masses decide they too want a piece of the good life and elect pro growth politicians who EXPAND the wealth pie, instead electing those who think of just dividing the pie that is there we will do as others are doing in the upper class and above and continue to take from the lower middle class and below and expand our own personal wealth.  This is the side of the so called financial inequality that one must as we said go with the flow. 

If you have any chance to get into the expanding wealth category your best option is to avoid the masses and get a good paying job of those few that are available by learning a skill that is in demand then investing your paycheck like a religion in mega cap ETF's or mutual funds.  Savings rates of at least 15% and preferably more is needed and put it on autopilot. As we have suggested here ad nauseam use Vanguard Funds as your investment choice, which are cheap and investor owned too. Yes we all hope that new policies will change the current economic landscape, but smart people know to work hard and go with the flow. 

Joe Sugars of St. Pauls 1916 to 2016

Maybe the most enjoyable of my experiences growing up and spending most of one's working life in a number of Southeastern North Carolina counties are the friends one meets along the years.  in January 1982 I got to meet someone who would teach me as much about marketing in 30 minute visits each Tuesday morning as any college course could ever do. 

In early 1982 I began work as a retail advertising salesperson with the Fayetteville Observer and took on the Robeson County route.  Part of that route was the weekly stop at Joe Sugars of St. Pauls NC clothing store for their weekly ads in the newspaper.  Frankly I was not prepared for the first experience of walking into this clothing store in the small town of St. Pauls. By small town I mean something like 1000 population tops and a small main street of at most two blocks.  But I went to do my first call on Stanley Sugar at his clothing store in this small town pulling up to a store that was from the outside rather normal for a town this size.  Into the store I went and unto my eyes I see on table after table thousands and thousands of pants, hung in rows thousands of dress coats, and stacked on shelf after shelf thousands of shirts, and huge selections of absolutely everything a well dressed man would need. Thus was Joe Sugars of St. Pauls NC and their slogan "if you got a figure we can fit it" because they have a piece of men's apparel for every need for any size man. Also in almost any color too. Seriously this was and likely still is the most men's apparel one would will find  under one roof in one location on the East Coast.  

So for the next decade plus of serving the newspaper advertising needs of this clothing store from my posts at two newspapers I got the priviledge of spending some time about once a week with Stanley Sugar, who was the second generation of this soon to be 100 year old establishment. Stanley would always run a series of small ads each week in the newspaper touching about every day and almost every section of the newspaper.  Simply put he did this since he knew most people would look at certain sections they favored and almost any ad no matter what size would be noticed if the ad had something worth reading.   He would tailor his business card sized ads for the particular section of the newspaper it was in such as women's section, sports section, general news, etc.  He would generally come up with a new group of ideas each week too in what I quickly realized was a fertile mind of marketing ideas.  He would do the original pull an envelope and get a discount ads and would go clever with "closed Wednesday afternoon, but open late Saturday to make up for it" ads. He had a picture in his store of a very old looking man that was labeled "35 year old clothing merchant."  His dressing rooms well...err...ahh.. were labeled X rated, R rated, and G rated but all were in good taste.  He had a plaque with the words " Price is what you pay and value is what you get and those who consider price alone are another man's lawful prey."  To this day I have that plaque on my wall as well as I considered it wise advice. 

On the days I would go pick up his ads I would either go to the back of the store and get them or go to the shoe sales area where he would be sitting and doing some book work or just taking a break. Here in the shoes I would get my masters degree on how clothing retailing and marketing worked and how it would apply to other businesses too.  Stanley had a wonderful dry sense of humor that everyone would enjoy.  One day I asked him what type of customer he liked to do business with best and he said it easily would be a salesperson of any type, in that they always needed good looking clothing for sales work and would buy his wares on sales and on non sales periods too.  Just fine customers who would not quibble too much and he would do all he could to keep their business.  As for the worst customers, he said easily lawyers and doctors, who would complain about the offerings he had and then complain more about the price.  He noted they would try and "Jew" him down with one of his great laughs.   Stanley being a Jew himself made the comment most funny. Stanley took his store, employees, customers, and family seriously, himself not so much. 

I always found it cool and rather nice that Stanley Sugar successful clothing merchant and first in the nations now cool trend of wearing outlandish colored socks would take time to school me a young advertising salesperson.  Over the years I discovered if he really liked you, he really liked you, and he would take time to chat even during a busy day.  Later in his life he was wanting to pass on his store to family and was working on convincing his young nephew and the store's original owner namesake Joe Sugar Jr. to come take over the business.   During the period of decision I told Stanley that he was having problems getting young Joe to come forward that I would do him the honor of marrying into his family and converting to Judaism if he would let me take over the business.  Stanley laughed so hard he about feel out of his chair, then said that might have been the most honorable offer he ever had.  Friends could talk with Stanley that way and I considered myself blessed to be a friend of many years. 

Stanley passed on sometime later and indeed his family took over the store.  Joe Sugar Jr. as expected became owner of the now almost 100 year old establishment.  Since I retired I do not see Joe Jr. as much since my dress up clothing needs have dwindled a bit.   However my main navy blue blazer in my closet as I write this is still labeled Joe Sugars of St. Pauls.  As Stanley taught me now those almost four decades ago no well dressed man is without a good quality navy blue blazer in his closet as they go with many dress pants and make a man well dressed.   So sometime next during the next 6 months I am going to drive the less than hour drive down I-95 to St. Pauls and get another blue blazer in a toast to Stanley Sugar my old friend.  Might even walk around the store and think about those days we used to talk in the shoe dept.  Hopefully Joe Sugar Jr. will read this and invite me to the 100th Anniversary event sometime next June 2016. In the meantime if you have not done yourself the favor of checking out this one of kind men's store do so and you will be glad you got to know Joe Sugars of St. Pauls. NC.

               

Ode to Jim Parker

Even across the room my old friend and boss recognized me with his now 91 year old eyes. There was also that twinkle one would always see in his eyes when he saw somebody who had worked with him and enjoyed doing some catching up. Those who worked for him know about that twinkle.  I had come this November 2015 day to Clinton NC in response to his son's book signing event in his former hometown, but in truth I was really there to see my old friend who a former newspaper co-worker had alerted me was to be there. 

It was now over 37 years ago that I walked into his newspaper and began discussing the advertising job opening he had due to the recent promotion of salesperson to advertising director at the Sampson Independent.  Little known to me at the time Jim Parker had already pretty much decided I was the one he wanted to hire since I came with then some over 3 years of experience doing what he wanted to me to do at his newspaper, sell advertising  We talked that July 1978 day, and he and his new advertising director sized me up, and they offered me the job on the spot.  Never in my over 3 decades of seeking employment did I get that and on this day I was more than ready to accept since I was ready to come home to Eastern North Carolina from a time working at a newspaper in another state.  

Even today I consider the next nearly four years working for Jim Parker, and the next decade getting his advice before he retired,  maybe the most satisfying and most learning of my life and career. Over the four years of working at The Sampson Independent I would meet several lifelong friends. Over the next four years I would find enjoyment with working with a group of professionals still unequaled in my career.  Over the next three decades many of those I met there would keep in contact and consider ourselves blessed to have come together at that moment and that time. 

Jim Parker was without doubt the person with the most integrity, most class, and the finest boss I ever had the priviledge with which to work.   I expect he knew he had assembled a special team at the Sampson Independent during those heady late 1970's days of the newspaper business.   Jim knew to just point us in the right direction and let us go and good things would happen.   Good things did happen too not only in advertising revenue, but also in news and advertising awards, quality of work done in all the newspaper's departments, and lots of good times for those working there.  One of those times of one being at the right place at the right time. 

That group also did something else too in the newspaper industry I expect is unequaled today.  The Sampson Independent trained and sent out more publishers and newspaper department heads at that newspaper and to other newspapers that of my last count was more than four dozen. For a small daily newspaper of just under 10000 circulation that was unheard of, but then again Jim Parker was a special boss and special person who knew who to pick good quality staff.

Jim Parker literally oozed integrity when he spoke and when he directed staff.  Jim got his honors through the years, NC Press President for a term being one of the best known, but I expect knowing him the most joy he got was watching his employees grow in the newspaper profession and do well. One could tell that from that twinkle again in his eye when he spoke of someone who had worked for him and went off and did good as they say. Jim respected us and pushed us to achieve to our best and in return anyone who ever worked for him never had a bad word to say about him and would perform at their highest level to get his approval. 

So this weekend in Clinton I got to talk newspapers and other topics with my close friend Jim Parker and for a moment relive those wonderful days of working with him at The Sampson Independent all those years ago.  Of course during our conversation Jim Parker made talk of his old newspaper there in town and right on cue as the old editor made points of criticism about how he thought they could do a better job of covering the news.   Riding around Clinton before I headed back home I got to revisit some old haunts and rode by the newspaper office that is still there after over four decades plus.  What I would give to go back and do it all over again. 

Thank you Jim Parker for the memories, the years of setting an example I always wanted to live up to, and most importantly the personal approval that comes from those who see that twinkle in your eye and know that means they are and will always be part of your extended newspaper family. 

The Economy remains Stuck on Stupid.

Stock market sell off...check.   New US House Speaker...check.  New US Government budget...check. Paris terrorist attack...check.  Nothing, no one, not a single activity can change the direction of this market.  That direction has been for over 6 years an uneven but steady climb upward for mega and large cap stocks.  Indeed no government policy or business policy has changed much either and we do not expect much change until at least Spring of 2017 and even then it is a big IF.  

We are as they say "stuck on stupid" and for those of us who have held and are still holding mega and large cap stocks we say "thank you very much."  For those needing jobs and those needing good paying jobs the tide is out and will be out for at least another two years or maybe longer.  For those needing higher interest rates that tide could be out for years.  So holding US Treasuries or buying CD's for safety has been less than rewarding and mostly a fools errand.  We have been stating and posting for some time now there will be no interest rate increases by the Federal Reserve for at least until late 2016 and we doubt any then.   The economy is just not capable of withstanding a rise in rates and with an election season upon us there will be none. 

Keeping up with inflation, or what used to be called inflation is pointless.  Witness that Social Security gave no increase this year and likely will not next year either.  Witness mortgage rates back down in the 3% range.  Here is a fact you can take to the bank. If you are in a business that needs human capital, or is human capital intensive, we would highly suggest you start considering another profession unless you are old enough to run the clock out.  Human capital, otherwise known as jobs, is a receding expense in most businesses due to the advance of technology.  McDonalds and Walmart are fast approaching the point where robots and such will replace higher cost humans.  Only in businesses where experienced or well trained human capital is needed is there job safety.  We say all this to note one of the reasons inflation is dead is that the highest cost of business which tends to be labor is fast losing the ability to ask for more compensation.  So the need and push for higher interest rates follows the inflation trend. 

So the beat goes on and we remain stuck on stupid.  Financial engineering by large cap companies buying back stock and increasing dividends to reward those with assets.  Political economy rewarding those who do not work, will not work, or feed off the government largess of the spending of those same non workers.  Crony capitalism remains alive and doing this well and those of us who have assets say another "thank you very much." 

As we stated in our next to last post the Doom and Gloom crowd, which is always wrong, has gone completely into hiding with the recent stock market surge back to this summer's highs.  They will likely stay there awhile, unless so real global crisis occurs such as someone gets mad and enters someone else's safe space, and even then if a terrorist attack can not stop money movement what can?  In any case keep your assets in mega and large cap stocks, mutual funds, or ETF's and enjoy the ride.  If you need a job, maybe even a high paying job, since you have been unable to figure out how to get on the government plantation gravy train of not needing a job, we suggest you consider electing a pro-growth President and Congress next time.  Of course with the two leading contenders not being pro-growth that might not be in the cards.

               

Our current stock option trading portfolio. November 2015

This is our trading account stocks.  We look for value stocks that have little downside risk. Rarely do we trade stocks with over a 15 PE.  These are not suggestions for purchase, just a listing of stocks we prefer to trade at this time. 

AAPL..One of largest positions.  We continue to favor Apple for it's customers addiction to their products. Safety with little downside risk.  

AGN..  Biopharma with a solid cash position and low PE.  Has been sold off recently making it attractive. 

AMGN..Note comments above, just Amgen is a older company with even better base of support. 

BAC..Huge bank, one of big four, that is selling for less than actual book price with lots of upside potential. 

C..Another of the big four banks that is selling for less than book value. 

CHL..We like this Chinese telecom that is the worlds largest cell phone provider. 

CSCO..No one does much in networking without using something Cisco makes in routers. 

FB..Facebook is the future of the advertising platform.  The only stock with a high PE we own. 

GILD...Another biopharma that has sold off making for a nice entry point. 

JPM..The largest of the big four banks and selling at the lowest PE. 

JNJ..This is the largest pharma stock by market value and we like the safety. 

MRK..Large pharma that we like at this low PE. 

NEWM...We have been disappointed in this stock.  It has all the right ingredients for capital gains.  Good business idea, buying at good value, and making the most of efficiency in operations.  A nice high dividend too.  The only problem is that the market has not though the same. We continue to own it long for the nice dividend and possible capital appreciation. 

NNC..Our largest long position.  Closed end bond fund that has produced capital gains and steady tax free income for some time now.  We might lighten just a bit here if we sense a rate hike. 

ORCL..The biggest business software company in the world at a low PE. 

PFE...Large undervalued drug maker. 

T..Telecom provider that we like for the fact people who hooked to their phones. 

VZ..Telecom provider that we like for the fact people who hooked to their phones. 

WFC..Price has sold down for reasons we find silly and we really like it now. 

WMT...We believe Walmart has sold off too much for the world's largest retailer. 

              

Oh where, Oh where have the Doom and Gloomsters gone?

Fish gotta swim, birds gotta fly, girls gotta text, and if there is a 1000 point sell off in the market the Doom and Gloomsters will come outta their caves.  Only a few weeks ago the D&G crowd came out and announced the end was near and the market was going down more thousands of points.  Ahh...well today it is well ahh...up about 1000 points from the point it was announced it was going down for the count.  What happened? 

Remember when your humble blogger, OK well not your so humble blogger, was pounded by numerous posters on Facebook and elsewhere that we did not know what we were posting about and should go away and shut up.  That the market was going down and our advice for investors should be to sell everything, put it under your mattress, and hide under the bed.  Can not tell you the number of inside messages we got from registered representatives who could not rebuke such talk and wished they could but due to RR rules had to remain silent.  Well your humble blogger here has not such rules since we trade and invest in our little private account and private hedge fund we can say it loud and clear,  "YOU DOOM AND GLOOMSTERS WERE WRONG AGAIN !!"  

These D&G creatures come out because frankly they do not have the experience and most importantly a history of personal former mistakes in the market.  They do not listen and read intently to a sizable audience of market and financial opinions to understand what they do not understand.  We would expect they get much of their so called knowledge from such sites as Zero Hedge and Peter Schiff etc.  We too take a look at these sites regularly, but only for amusement and to see if we missed anything important.  On the other hand we daily kept abreast of other bloggers such as Doug Kass, Larry Kudlow, John Tammy, and a couple dozen more diverse opinions.  We use over 36 years of market experience which includes a combinations of technical and fundamental analysis to daily trade and lifetime invest.  In the end our lifetime of results speaks for itself and that is the steady compounding of investing and reinvesting to produce a build up of wealth that is tax advantaged. 

So where is the market going from here?  We got that down too and unlike the D&G crowd we will absolutely positively guarantee we will be right.  There are two scenarios.  One, we are in a market that resembles the late 1930's in America. Interest rates are low and will stay low for a good period here, we are talking years maybe decades below 5% mortgage rates. Just not much economic growth and not much reason for business to reinvest profits.  Therefore profits are being reinvested into their own stocks via dividends and stock buy backs.  That means anyone who is invested in mega and large cap mutual funds or ETF's will do just fine and grow their investments about 6% to 7% for as far as the eye can see.  Not bad if you just leave it there and let it compound over a lifetime.  We suggest a cheap expense Vanguard 500 fund or ETF.   Just add to it in a regular savings via an IRA or 401-k and it is even better since it is tax advantaged.  Anyone who bets against America long term is a fool and has been made a fool for some over 200 years. 

Now there is one other scenario but it is only better.  That is American voters, more specifically the young folks, figure out that voting for gay marriage and free birth control does not fill your gas tank, put food on your table, or grow your retirement nest egg the best. The under 35 year old crowd will discover what the 35 year old to 55 year old crowd already knows and that is we need some leadership in Washington DC that makes me wealthier by growing this economy, creating jobs and making my wages go up.  They together find that leader, vote them in, and experience what the over 55 year old group experienced with the election of Ronald Reagan that lower taxes, lower regulation, and free markets make everyone better off in the long term. In this scenario the young folks experience a renaissance of Free Market America and live a 30 year boom too. Businesses quit increasing dividends, stop buying back stock, start growing their business, the Federal Reserve goes into hibernation, and stocks grow 9% to 12% annually.  If you want to see what 30 years of 6% compounding versus 12% compounding does to your retirement assets go to your online computer and see how the millions, yes I typed millions,  add up. 

So as we opined on our last posting, "Young people this is your economy and you get to choose if you want to live in it". your choice  and your life, scenario one or scenario two.  We guarantee you get to CHOOSE one of the two choices.

              

Young people this is YOUR economy and YOU get to choose if you want to live in it.

Janet Yellen said it all last week in one simple sentence that almost all financial and news reporters just let blow right over their head.  Not surprising of course since 95% of all news people are Democrats and have at most a 6th grade education regarding economic matters that they could care less about learning more about anyway. Actually it comes down to one word she said during last week's press conference after the Federal Reserve meeting.  That word was "involuntary."   As in involuntary part time workers.  

That involuntary workers theme was the primary reason the board left interest rates at virtually zero for about the 8th year running.  Truth is despite the rhetoric from Obama last week about a great American economy our economy "sucks" as the young people would say.  As in there almost no growth and no real job creation, beyond part time.  Not to mention so many people have dropped out of the labor force and on to government welfare of some sort as to depress the participation figure to right at an all time low. 

A no growth economy is not a good thing unless you are in an industry that is basically bullet proof to economic concerns. Only two job types seems decently secure right now,  something in the health care business and on the government payroll.  The first though is subject to economic concerns when things get really tight, but on the other hand a government job is as secure and worry free as they come if you can get one and most can not.  Only the privileged few have one. 

So if you are living in the real world where business conditions are important to job security and for many level of income indeed economic growth is important.  History rhymes but rarely repeats.  We are reliving the late 1930's economy right now in America and now as then it is not a pretty story.  Going back to Ms. Janet and her no go interest rates we too are reliving the late 1930's there in that the rate then had been at zero for many years and finally in 1937 they moved it upward ever so slightly and the bottom feel out of the economy.  So Ms. Janet and her gang are left wondering if they too are going to repeat history with a small push up in rates.  Then World War Two saved the economy, so maybe something will bail us out again, but that obviously is not the best scenario.  We continue to say no interest rate rise until after the 2016 election if for no other reason, political concerns. 

Life cycles repeat about every 80 years on average, since generations are about 20 years long, it takes about 4 generations to forget about stupid mistakes we made in the past and repeat them again.  History is a constant move upward in technology and medical achievement and such, but human nature never changes.  Greed and fear have been constants for thousands of years and will remain so for as long as humans reside on this ball of dirt.  So despite great progress in standards of living human nature forces foolish repeating of forgotten errors in judgement.  

So the response to the Great Depression was a huge growth of regulation, taxation, and overburden of small business where real jobs are created.  The result then was government created jobs where one person was paid to dig a hole and another person was paid to fill it up.  Sounds great huh?  Well remember the only way we got out of that mess was to blow up the world with war for 4 years with lots of death and dying and in 1945 got to sorta start all over again.  So what has been our response to our own Great Recession,  yes you got it more regulation, taxation, and overburden of small business, where now the rhyme to dig a hole jobs has been lots and lots of part time jobs with no benefits and not future.  Even the full time jobs that have come about are based on very shaky business going forward.  

Now we can sit here with our Obamacare, Dodd Frank regulation, and taxation of small business or we can do something about it like change leadership in Washington.  The good news is that most states in the country have changed leadership and those states are slowly moving forward even with the heavy handedness from Washington DC.   Young people this is YOUR economy and YOU get to choose if you want to live in it.  However you only get one chance to make a difference as once this no growth scenario is locked in you can stick a fork in it as you and your children must live in your new normal created world.  Maybe you like no growth and hoping to win the lotto game of getting one of those safe and secure government jobs? But most of you will lose that game.  In 2016 you get to choose your fate and your future economy and yes even your future life style.  Make the right choice and life will be more than hand outs and low expectations.  

Voting for Hillary Clinton makes people like me and her richer day by day.  Hillary and I are part of the political economy and financial engineering of the Federal Reserve that keeps the goodies flowing to us with accumulated assets and away from young people trying to accumulate those same assets.  We with assets enjoy lower than low interest rates since our futures are tied to banks and the ALREADY financially secure class and frankly since the current resources are so small we much prefer not to share.  On the other hand you can burst this little rich folks bubble with a pro growth pick as your leader who will not only deregulate, but also lower taxes, and clear the mine field for small business for some FULL TIME job creation, but more important do all this without a world war.   

Your choice, your future.  I will be sitting on the beach watching if you too will repeat history's mistakes.  

             

Heads in Beds or Beds in Heads.

Is it heads in beds or beds in heads?  Honestly, I have used the second one to much laughter for some time and believe myself to be more correct than most people think.

The idea behind tourism in many North Carolina communities is to get travelers off the interstate highways (if you have one) and Johnston County is blessed to have two! The purpose is to get travelers to come, from other states and NC counties within several hours drive of their destination and spend the night.  Yes, it is great to have them spend money shopping and dining, but if you are being funded exclusively by visitors' taxes paid when someone stays at overnight places, then it is crucial to get them to spend the night.

Spending the night creates lots of good things.  It is hotels/motels making money, shopping venues getting extra shopping time, gas stations pumping gas, meals eaten at local dining places, and perhaps a stop at a service business of some sort, and of couse, that hotel visitor's tax of around 6% or so.  More nights equals more money. So yes, heads in beds is the point here.

However, before you get any heads in beds you must get those BEDS in their HEADS! More precisely, you must get them thinking YOUR beds in their heads, not someone else's beds in their heads. Trust me. Almost every county or city in the country is currently doing the same thing since tourism is a high spending and low infrastructure cost.  Visitors stoping and spending the night in your area results in hotel tax, sales tax, and not to be forgotten, property tax as in a vibrant visitor economy means those shopping center, those hotel, and those restaurant buildings are more valuable.

So to get your beds in their heads someone must figure out how to do it. Advertising, marketing, and dedicated professional people are required to get the job done. Tourism Authorities are supposed to do just that and the Johnston County Tourism Bureau has been doing just that for some time now, successfully!  In fact, JCTB has one of the best growth records in the state and honestly, Johnston County is not exactly on the tourist maps, so to speak. Other than the Carolina Premium Outlets the list shortens quickly as to an overnight draw. Remember, we are speaking "overnight" draw. And yes, we are blessed by having the Bentonville Batteground, Ava Gardner Museum, and Tobacco Museum. 

Over the years, the JCVB has performed first class work getting people to stay in Johnston County.  They have done so with Advertising in out-of-state magazines and some in-state publications that have wide circulation.  Being at out-of-state traveler's trade shows where prospective tourists go to find ideas of where to visit is important. Visiting the state border visitor center, building relationships and informing the workers there about what Johnston County has to offer, making a regular stop at the NC Visitors Call Center in Raleigh (where people call for information on planning visits in NC), and much more to mention here add so much value. Lately, JCVB has been doing yeoman's work with social media such as Trip Advisor, Facebook because such is where the younger (and older) set go to find out where to visit. JCVB posts ads and put up websites, and more importantly monitor any bad references that might kill an entire exit's businesses with one post.  So, the key here is to keep the older tourists coming while creating desire in younger tourists, too. JCVB has their job cut out, yes? 

We are blessed in Johnston County to have a local, professional woman at the helm of our tourism authority, one who has in her heart a passion to grow tourism in this county.  That cannot be replaced by just another professional.  Donna Bailey-Taylor leads a team that works well together and, as a whole has some years of experience in working with local businesses and government to get people to stay in Johnston County's overnight venues. Ms. Bailey-Taylor serves at the pleasure of the JCVB board and acts in accordance with what they direct. 

Ms. Bailey-Taylor and the staff have done an outstanding job over the last two decades with honor and recognition, with Ms. Bailey-Taylor being one of the the best at her craft. They have won awards, spent tourism tax wisely and effectively, and yes, produced almost an unbroken record of continuing increases in heads in beds.  They succeeded in this by discovering how to get JOHNSTON COUNTY HOTEL BEDS in prospective visitors' HEADS! 

How do I know all this?  For twelve years I participated as a JCVB board member and to note I am currently not on the board. I personally have watched the staff work. I personally have participated in spending decisions.  I personally have objected to some ideas, but accepted what the board decided in a majority vote.  Ms. Bailey-Taylor is NOT compensated by governement money nor is anyone on the JCVB staff. The entire operation (staff, marketing, everything) is funded by tourism tax, not a tax from local taxpayers' pockets. So, whatever they do to create more demand for heads in beds comes from using only the tourism tax revenues to do so.  Let me repeat that. NO Johnston County taxpayer pays one cent for any part of the operation of the JCVB.  It is completely funded by visitors' tax on hotel stays.

Let's go back to just who are the people JCVB is trying to reach here.  It is NOT Johnston County residents who frankly use the motels here very little.  It is NOT close by counties since those visitors might come and shop and dine which is wonderful but few, if any, stay the night.  It is NOT someone, while traveling, by some remote chance, read a local newspaper or listen to a local radion station while in their car or stopped to get gas or eat a meal.  It IS the people in NC counties and other US states who need to spend the night. Remember, you must get visitors to spend the night for them to pay visitor's tax.

One of the largest budget items has been interstate and major highway billboards.  Billboards along the interstate (in my opinion and most hotel owners' opinions) create more bang for your advertising investment.  More heads in beds, if you will.  My years on the JCVB included a steady diet of saying, "Can this money be better invested on another billboard?"  Of course, billboards on US 70, Interstate 95, Interstate 40, US 701 and US 301, where most visitor traffic comes from, makes good sense to me and others. Of course, our competitors along those raods were interested in acquiring those same billboards and looked for ways to get up on them instead of Johnston County, as there is a limited number along those roads due to regulations.

Here is one example of spending most of you do not know about.  The newly formed Sports Authority in the county is a direct offshoot of the JCVB and is targeted at a demographic some may not consider for overnight stays in the county. The Sports Authority is going after many of those baseball, softball, swim, football, and other such youth sports leagues who have tournments across the state to use our sports facilities. The kids who participate bring their parents and others, many who dine out, shop, and spend the night since tournaments generally last over an entire weekend. Talk about a home run - getting one of these tournaments pays for itself over and over with no cost to local residents.  Add in all that sales tax money they leave behind as well. The JCVB staff puts together a welcome bag for these players with gifts, goodies and offers to encourage spending more money while in Johnston County.  Much of that so called "questionable" money spent at Wal-Mart was for those bags being given to players and their parents, at NO cost to local taxpayers. 

The Johnston County Tourism Bureau is governed by a board selected by each of the local chambers of commerce, some at large members, and some local people involved in the tourism business.  Those member slots are required by a state law governing the board and must be approved by the Johnston County Commissioners. No member of the JCVB gets paid a dime. They do get a lunch when they meet monthly. Frankly, most of these people on the board work day jobs and the lunch provided at the meeting makes it so they can do the board's work during lunch break and go back to work.  The lunch is usually a sandwich and drink or a catered meat and vegetable meal from a local restaurant, keeping that money local.  Not exactly fine dining but much appreciated. The JCVB work is hard and the board can meet up to twice monthly, if needed, for committee meetings.  There is also a state law that governs the board and how they must collect and spend the revenue.  The board is the fiduciary agent that makes sure that happens. Each member is required to sign a document annually that states they know nothing was done illegally during their tenure.

During my tenure on the board, I do not know a single time that money was "wasted" or there was "questionable" use of funds.  During the five years time frame of the recent local news investigation I was the Secretary/Treasurer for three of those years and the Vice Chair for the last two, so if anything happened I would have known about it and frankly signed off on it.  As of now, not a single board member has come forward to say otherwise either.  Each year we were audited and never did an audit come back saying money was being misappropriated.  For the record, at no time was I ever interviewed during this local media inquiry. 

There are other opinions out there regarding if the room tax has a real value.  As in, if we just drop the room tax completely would the resulting assumed decrease in room rates bring more visitors to spend the night in our hotels?  If the room tax was the only variable in the heads in beds then a lower tax or no tax at all might very well make a difference in where travelers stay the night. However, one must take in location, how close are hotels to the main roads, the cost of doing business locally, the local property tax rate, does the area appear safe to stop and spend the night, are there places to dine nearby, and other such factors. So, the room tax is part of a dynamic environment that has lots of moving parts.  If a lower price was the only reason for where travelers stay, then all the lower priced hotels would be full every night. 

So, Johnston County citizen, next time you pay your local property tax, consider that it is lower by about $200 each year because the JCVB does their job, does it well, and at no expense to county taxpayers but brings a reward, visitors, and promotes the county we all love. They get OUR beds in people's heads!

               

Getting and keeping wealth in America 2016

The talking heads talk and the doom and gloomsters make yet another appearance. Both will be back in their caves soon having made little profits and learned nothing despite what they might say. We are revisiting the 1936 economy and the only way to create wealth now is like some of our fathers did then. 

We had what in our opinion will be called at some point down the road a stock market temper tantrum this week. Do not be surprised if the adolescents more commonly know as stock traders have more tantrums down the road.  Traders who only think in short term decided it was time to abandon the market since the Chinese economy appeared to be sinking and sold with out thought and created some serious long term buys in stocks such as Apple, Citigroup and JP Morgan all of which we who are the adults in the room and have a long term investing approach scooped up at the near fire sale prices. For about a 48 trading hour period fear overcame greed in the stock and bond markets. Our opinion long term the economy and stock market have changed little and when wiser heads assess the roller coaster of the past week they will come to that conclusion as well.  Let's note one factoid that Warren Buffet uses for stock value. The 10 year US Treasury is yielding 2.1% and the S&P 500 forward earnings is about 6.2%, so owning stocks gives you about 4% more than holding bonds,  a fair value for the small extra risk involved.  

China finally came clean just a bit and noted that to all except those who did their homework earlier their economy is not growing at 7% plus annually and is more likely not growing at 5% reported either.   China used several tools in their socialist tool box last week to try and stabilize the stock market to almost no effect. Note we said they tried to stabilize the STOCK MARKET and not stablize the Chinese economy. The reason is simple almost all large companies in China and shares of stock are majority owned by the Communist Chinese government.  The only control they do not have is the part of the stock market where they have allowed Chinese citizens and some outsiders the chance to own shares.  So when the Chinese were found to be over speculating in Chinese stocks the government stepped in to try and keep the panic down, it had little or no effect because when one tries to merge capitalism with socialism, in an effort to bail out socialism's huge faults it does not work, never has and never will. Socialism fails every time it has been tried throughout history and leaders in China and now many in the US have never learned the time honored lesson.  For the record we own one Chinese stock, unlike others we know who own many, and that stock is China Mobile since we are of the belief mobile phone service is a no brainer in China as much as it is in the US. 

We in the US have one own brand of command and control economy going right now. We have defined this ad nauseam in our postings as the political economy and financial engineering.  Like it or not until someone or some Congress comes along and changes the path of Obama's huge federal spending we will continue to have out of control federal spending and lots of largess filling the mega corporations money pots.  Like it or not until the Federal Government changes fiscal course the Federal Reserve is being forced to keep rates near zero since that is the only thing propping up the slower the slow growth US economy.  We continue to say no rate increases until late 2106 if then and if they do move forward expect a 25 basis point move and back to a sleep that would make Rip Van Winkle jealous. 

So how does one play this new US command and control economy?  Once again we have changed little in our advice.  Despite the roller coaster movements in the stock market this week we are basically back to where we began and that after finding out the almost all large companies in the US are affected little and have low exposure to the Chinese economy.  Imagine that China is not the big bad bully we have been lead to believe.  In fact the Chinese economy, like Brazil, like Russia, like Europe, like just about every other economy in the world is dependent on guess who, the United States capitalist economic machine to survive.  The problem is the US economy is subject to too many regulations, too high taxes, and too much federal spending largess, that only helps the biggest and baddest corporations.  We have as in the 1930's over reached in our attempt to make sure everyone is safe from the fact that indeed free markets have recessions.  Recessions that in the end make for better allocation of resources and more high paying jobs. Maybe one day the ingenuity, the American dream, and the sheer powerhouse that the American economy can be will be unleashed once more to produce jobs and wealth for the average American citizen.  Until then, until we change policy in Washington DC, as we have opined seemingly now forever keeping your investments with the mega corporations benefiting from all this crony capitalism is the way to go. 

As Warren Buffet has opined about where to put his wife's money after he passes you too should do the same.  Try the Vanguard 500 Index fund or ETF.  Invest and forget about it, well at least until the American voters change politicians and policies in Washington DC.  This is not what we prefer, but as we told someone else this week "it is what it is" and smart people play the game until the game changes.  If you have assets to invest consider yourself blessed to have the option to ride along with the mega corporations benefiting from the spending of the federal government and the low Federal Reserve rates that allow your mega corporation to sell cheap tax advantaged bonds and buy back more stock pushing up that share price even more.  In a slow growth economy why reinvest in your business that is not adding customers or customers buying more of your products when your profits can be plowed into stock buybacks making your shareholders and managers wealthier and wealthier. If you have assets enjoy the ride.  If you do not and need a job or maybe some real hope and change, change your vote. 

What a Ride...Is it Over?

We got on this trading ride just over 3 years ago and it has been one great ride. As we have opined in the past we were foolish enough to allow our dislike of Obama and his policies to cloud our mind to the objective of making some profits.  So for 2 plus years we fought the battle thinking sooner or later people would wake up to the situation unfolding.  Then in early 2012 we saw the light.  The crony capitalism of Obama and the political economy of out of control federal government spending was upon us in full force.  Add in the financial engineering of lower that low rates of the Federal Reserve and you go yourself a gravy train.  A profit gravy train for investors and most importantly traders.  We are both.  So we will acknowledge we were late getting on this train as like it or not we are still not the absolute sharpest knife in the drawer and those in more exclusive financial circles got on the profit train some two years before us.  

So for three years and about two months we have traded and invested WITH Obama and Democrats crony capitalism.  That is stay with the 100 or so big corporations feeding at Obama's federal spending and using those profits to buy back stock with cheap rate bonds offered up by the Federal Reserve.  Add in some nice and growing dividends and you got yourself on that gravy train.  We have profited handsomely in the seven figure category and smiled all the way to the bank caring less what these policies were doing to the jobless and poor just like the controlling political class. The question now has this free for all investing and trading ended? 

During those three plus years we have not had one single trading loss and our S&P 500 investments have gone up and up.  Then in late July of this year things changed.  The market stalled and we are currently sitting on some three trading losses.  Yes we will admit two of them are our personal mistakes and they are currently paper losses, but each day they stare us in the face when we open our trading platform saying you lost your hedge.  Now in the overall scheme of things these three paper losses are not significant, but traders really do not like to lose.  We take losses seriously above a certain size of a few thousand dollars that we consider the cost of doing business.  It is personal competing in this big boys game of hedging.  Here on our trading side we have decided to sit on these losses and see what happens as we believe most of the damage in our holdings has been done and besides there are those nice juicy dividends rolling in from these positions.  Remember that financial engineering again.  At some point the market will stabilize and realize what we have already stated there will be no rate increases until late 2016.  The economy can not stand it and the democratic party will not tolerate it.  Love investing with the rich democrats. 

So what to do about those investments, that are not trading positions.  Simply put, like Warren Buffet, we believe America will right itself at some point here since even young coffee drinking metrosexual parent's basement dwellers eventually decide to grow up and need a job.  When young folks wake up to the need for economic freedom instead of social foolishness like all generations the need for the vibrancy of free markets will become clear and we will have a economic boom. All the things are in place except the end to the political economy being run by Obama.  Keeping healthy numbers of assets in stocks and the S&P 500 makes sense going forward if you got a couple decade time horizon. Buying more here and if the market goes lower are good choices for buying low and selling high. Betting against American capitalism has been a sucker's bet for some over 200 years and we like the odds here  If not we always have the possibility of Hillary Clinton winning in 2016 and the political economy of crony capitalism gravy train starting up again.  If this next train gets started we will not be foolish enough to miss the longer ride. 

Eastern North Carolina Electricity Customers are Getting Hosed.

As we opined in our last posting on Eastern North Carolina Public Power we simply do not trust the town councils in communities who use Public Power to treat customers right and lower the rate in complete junction with the just lowered wholesale price. So as the rates are being "adjusted" customers in those towns are getting hosed.  Allowing for some give in the fact most town councils in Eastern North Carolina who are in Public Power towns are nothing more than politicians even we have been blown away by the decisions almost across the board to refuse to pass on the full electricity rate breaks to customers in Public Power towns. 

Seriously here are the facts.  The reduction in rates after the Duke Energy buyout of Public Power/Eastern Municipal Power Agency is 18%, take out the 1.5% for the Electricities management of bonds and contracts and every single town should be reducing their electric rates 16.5% minimum. Only two towns as we can see have come close to that to date, New Bern and Wilson.  The rest who have acted so far are reducing rates in the low single digit percentages.  No other way to say this, but as we opined in our earlier posting, whatever revenue left over is to use for whatever the politicians decide.  In the past that money has been for political favors, wasted on favorite projects, or hire more government employees.  Yes many of these towns councils are giving some lip service to using the money for "needs" in the power depts. Strange that these "needs" just suddenly popped up.   These so called needs where already being met by the capital spending included in the already high rates. Many towns, like Smithfield were using the extra money piling up in electric revenues to keep property tax rates lower.  So yes town council members there is plenty of cash here to lower the power rates. 

So where do we go from here?  Maybe a better question do enough citizens and town council voters care enough to stand up for their what is owed them for long years of higher electricity rates?  We expect many town councils have already decided that by NOT lowering their rates to the correct level.  We also think many ratepayers have and are answering with their feet and moving out and not moving into of these high power rate towns.  Looking at the list of participants I see just a handfull of these towns that are growing, Greenville, Clayton, Apex, Wake Forest, and Louisburg.  So with over three dozens towns in the system the number who can withstand some less than full cut in power rates is minimal.  Let's also add in that when industry and business consider moves they consider high power rates as an impediment to where to set up shop.  But when you are managing your own public fiefdom who cares would be the answer of most town council members in this area.  Many on councils prefer towns not grow so as to protect their business turf from competition, so keeping rates higher helps in that regard. Add in the huge added pressure form town managers and government professionals who want to keep this revenue flowing for governmental reasons.  So be damned with the citizens and rate payers. 

We will keep an eye out here since we live in one of these communities so we have a dog in this fight.   So if you care, REALLY care about these rates and they being lowered to correct levels what do you do?  You attend town council meetings in numbers and tell your council members it is time to lower the rates and you do not buy their hyperbole about other spending "needs."  If they do not do so, vote them out with those who will lower the rates.  Add in that some of your electricity bill is still going to pay down that $500 million left over from the Duke Energy buyout.  Last round they failed to pay off the bonds in time and used the money for other purposes and just extended the bonds lifetime another 20 years or so.  Keep them honest on the bond payoffs getting done on time.  The point  is that all those "needs" and assumed and all those assumed rate increases they are talking about down the road will be to some or all extent not needed since in 10 years ALL the bonds will be paid off.  Meaning rates should come down again due to the decrease in borrowing costs. 

One final thought.  If you really want to end this game there is another better way.  Push your town councils to get out of the power business completely.  Tell them to call Duke Energy and ask them to make a deal to take over the town's power system, poles, lines, and employees all.  End the local crony capitalism, end the games being played with rates, end the uncertainties in costs going forward, and frankly lower the rates even further right now if done right.  Put what should have been business in charge of a business and not governments in charge.  Knowing Duke I can assure you they would love to do so since there will be little capital to spend and large numbers of closely grouped ratepayers to bring aboard their system.  Of course one will have to deal with those bloodsuckers at Electricities who do not want to give up their cushy bureau jobs and being the middleman.  We deserve better. 

A 32 year long Love Affair.

This love affair I am about to tell you about has been going on 32 years.  My wife even knows about it since I introduced it to her just a few months after we started dating.  Indeed she enjoys partaking in it now as much as I do.   However before I tell you about my love affair, let me tell you the "juicy" details of just how it got started those many years ago. 

I remember the exact day well, it was a Wednesday around 11:30 AM or so.  The date was Jan. 4 1983 and I had just joined the Lumberton NC Robesonian newspaper as their new advertising director.  My boss who wanted me to get to know the entire operation I would be working with had told me I would be helping out the sister newspaper in the adjoining town since he oversaw that operation as well. So this Wednesday morning we got into his car and headed towards the town with the sister newspaper.  

Down NC Highway 41 we headed east and drove into the little town of Elizabethtown and headed towards the newspaper office.  I had some familiarity with Elizabethtown since US Highway 701 intersected NC 41 in town and US 701 was the way to Myrtle Beach.  However this day was to go see the employees at the Bladen Journal our sister newspaper.  We arrived at the newspaper, spent some time with the staff and toured their office and facilities.  That is when the moment arrived. 

The moment was about 11:15 AM and my boss said we would head back to Lumberton, but would stop for lunch first.  Now lots of places in E-town as locals like to call it to have lunch but my boss for some reason picked what seemed to be nothing but an old pool hall in a storefront downtown. We walked in around 11:20 AM or so and I saw a line about 50 people long waiting in line to dine on the pool hall fare.  Strange I thought of all places to eat, here, my boss picks some hole in the wall with a long line to wait for and few tables.  But wait we did since he was the new boss and besides he was buying. 

The line moved quickly and within 3 minutes or so we were approaching the place to pay and get your food.  I told them to give me a couple of burgers and my boss suggested to get it all the way which I obliged.  Next up some lady with the fastest hands you would ever see whipped together two burgers with onions, chili, mustard, and slaw.  We headed to our table to eat. 

My boss for some reason waited until I took the first bite of my burger and asked me how I liked the burger.   This is when my love affair began.  No way to describe it but love at first bite of my all the way burger from Melvins of Downtown Elizabethtown.  My boss having dined here some 6 months earlier the first time wanted to see if my reaction to the burger was the same as his was those some months ago and as we later discussed and indeed it most certainly was the same. 

Now you can find burgers you like better I am sure, but for me the ultimate in burger love is an all the way Melvins burger and as my wife will attest I LOVE burgers.  Melvins burgers comes with regular mustard, onions, and some secret recipe of chili and very creamy slaw.  Add in a very crispy outside texture which makes for better flavor and nice crunch in the mouth.  The chili and slaw are lathered heavily over the burger and makes the meat juicy and not dry.  You will need lots of napkins because there will be lots on your hands and lots more on the white paper wrapping the burger comes in.  I take in a minimum of three of these good sized burgers and waste NO stomach space on such add ons you can buy like chips and such which you can buy anywhere so why bother.  Add the cola drink and I am set for several minutes of heavenly delight. 

Pat Melvin and his wife who owned the place and made up the burgers for many years sold the place some years ago and frankly the burgers may be a tiny bit off quality wise than they were before, but for us the taste, the dining in experience with others, and the pleasure of remembering the many times we have dined there over 32 plus years remains a draw. 

So several times a year I make the about 90 minute drive from my home to Elizabethtown for one purpose, destination dining.  Yes a 90 minute drive to buy BURGERS. My wife who got introduced to Melvins right soon after we started dating is always ready for the ride too.  Funny thing is almost every time I go someone at the table nearby has done a similar drive of if it is a local they say they understand the effort.  My wife has instructions to bring me a bag of these babies on my deathbed.

Old Media...Undervalued Cash Cows

We will admit we have been incorrect so far in this pick, but we still believe this is a great buying opportunity.  The stock here is New Media Investments, symbol NEWM, which owns a nice portfolio of small to medium sized newspapers many of which are dailies. Yes we know newspapers are so yesteryear, but stay with us here, we are talking about smaller newspapers in markets where the news is not covered by big television stations or national media. In my own state look at some of the properties they own,  Jacksonville, New Bern, Wilmington, Asheboro, Burlington, Lexington, and Shelby just to name a few. These towns are not covered by a large television station or a large newspaper, the people in these towns consume news too and the only way to get LOCAL news is by their local newspaper.  No one covers the town councils, the school boards, local business, local news other than the local newspaper there.  Add in there is little no competition in these towns for the local media.  So with a demand for news and the local newspaper being the only supplier they got a nice market position.  Many in these towns have lived there all their lives and are loyal to local media as well. 

So the owner of these newspapers has a market position and with the economics of newspapers finally getting down to basics now since the end of the overvaluation era newspapers one can make some nice profits.  Many of these properties are showing cash flows of 20% plus, which in any business is a very nice profit.  Add in that NEWM is buying these properties cheap and they need little or no capital investment to keep the cash flow going.  We have been in the media business now for right at 4 decades and we believe we know the deal here, but if you do not believe us maybe you will believe some other investors.  Lets start with Warren Buffet who has a very nice portfolio of these newspapers,  how about Carl Icahn who recently loaded up a another of these stand alone newspaper companies, Gannett.   Finally Leon Cooperman, one of the smartest and wealthiest investors today, just bought another $2 million dollars worth of NEWM, and he already owned over 10% of the company. 

We might be wrong here and with the stock down from the mid $20's to now just over $17 those of us who own shares have felt some pain. This stock and Gannet, symbol GCI, look like good buys here. We believe NEWM is an outright steal below $18 and we own 4800 shares so we buy our own home cooking too.  There is capital gain potential and you are paid well to wait.  How about almost 8% well covered dividend too.  So take a look at these two old media newspaper companies as part of your portfolio.  NEWM will be reporting second quarter earnings July 30 so either buy before for a bump or after for some more assurance. 

Trading Portfolio June 2015

We trade options and sometimes hold stocks for capital gains in rare situations.  Our current trading portfolio selections are based on mostly mega and large cap stocks that are valued based.  We look for stocks that have small downside risk and upside opportunity.  Therefore as an individual investor who might be looking to buy individual stocks one can use this list for selecting individual issues that are good for capital gains.  We also remain convinced that financial engineering that consists of low Federal Reserve rates into 2016 and huge stock buybacks support the stock market.  As we have opined in the past large cap stocks such as these selections are supported by the current political economy of the Obama administration and likely future Clinton administration who favor huge corporations who fund the Democratic party and thus get favorable regulatory and tax treatment in return.  We also believe a correction if it comes will be short lived and bounce back rather quickly.  

              

AAPL..Are largest position since we believe Apple has very low risk.   We currently think the price has stalled out due to the recent upgrade cycle has matured.  However Apple runs in stages so holding it is the best choice.  Still undervalued. 

AGN..This drug maker Allergan has continue to ramp up with good acquisitions and a long line of branded and generic drugs. They are widely held in hedge funds and most holders believe there is significant upside here at around a 13 PE

C..Citigroup is a excellent long term holding for a bank stock.  The big four banks control the assets in this country as preferred by the Obama and soon Clinton administration and are protected politically.  A single digit PE. 

CHL..Chinese mobile phone carrier China Mobile is the largest such company on earth with several hundred million subscribers.  A low PE of about 13 makes us sleep well at night. 

CSCO..Cisco controls much of the switches and gears of the web and onsite business technology and again with a low PE they are a solid long term holding. 

FB..Despite a higher PE in the upper teens we like Facebook as the future of the social media atmosphere.  Any sell off will likely result in significant buying by funds and large holders placing a floor underneath the moderately high valued shares. 

GILD..Still at only a 10 PE this drug maker Gilead is a powerhouse of bio drugs. 

GS..Large investment bank Goldman Sachs is the top dog when companies need mergers and advice. A low PE of 10 makes for solid opportunity. 

IBM..We consider this low PE stock one of more risky selections, but as long as Warren Buffet owns shares we will too. 

JPM..Largest bank in the country and one of the big four.  JP Morgan is politically connected and will do quite well with Hillary Clinton in charge.  Best valued of the large banks. 

MET..Large insurer Met Life is selling under a 10 PE which is cheap. 

NEWM..Our most aggressive selection.  New Media Investments has been sold off way oversold now and we believe presents a significant opportunity for long term capital gains and a 7% dividend at current prices.  We have significant share numbers here. 

NNC..Our largest long position for some time is taking some lumps due to concerns over interest rate increases.  Nuveen North Carolina Fund is still yielding over 4.5% tax free and we believe is a bit oversold right now. 

ORCL..Large software company that offers software packages to businesses.  We are considering dropping Oracle due to valuation concerns.  Not high valuation, just not cheap anymore. 

PM..Large tobacco company that we will be dropping this month.  Good stock and safe dividend, just does not fit our trading profile at this time.  

PRU..Prudential has been on our list for some time as a single digit PE large insurance company and remains so for now. 

QCOM..A new selection for us Qualcomm is inside every mobile phone and has patents on most of those tech pieces.  That includes the phones in China as well.  The stock has been sold down too low and we believe it is safe at this low PE and lower price. 

T..Second largest phone carrier in the US AT&T is a solid choice for dividends and capital gains with almost no downside risk. 

TCAP..We like this stock and company, but will exit our position this month due to interest rate concerns.  We still believe it is a good long term holding and the significant dividend is safe. 

VZ...Largest mobile phone carrier in the US Verizon is a solid choice for dividends and capital gains with almost no downside risk. 

Eastern North Carolina Electricity Power Deal.

One our first postings on this blog some four years ago discussed the situation with the Eastern North Carolina towns getting crushed by extra high electricity rates and how to resolve this issue. Seems that issue has been put to rest effective mid year 2015.  Or has it? 

First off very soon as we understand it Duke Power is going to effectively deposit into Electricities account, the company that manages the eastern NC power system and towns that are members, about $1.2 billion dollars. Now that is a lot of money however it does NOT payoff the entire debt of the power system.  There will still be remaining about $500 million dollars or so to be paid off.  Talk about a serious capital loss this one is a doosie, but that is the lousy deal politicians made for taxpayers back in 1981 buying some power plants.  The debt remaining past the buyout amount for the power agency is in municipal bonds and those mature on a set schedule, up to about 10 years out. Some of those bonds are what is known as callable now and we expect, and hope, the agency will call those bonds and redeem them quite soon after they get the Duke funds. Then for those which come due along the way over the next few years we assume that Electricities and the member towns will redeem them and use the funds still in the bank to slowly eliminate the debt.  We hope. 

Electricities and the member towns have NOT been good custodians of power revenues over the years. When money piled up in accounts waiting for bonds to mature known as a sinking fund the politicians in the towns and bureaucracy at Electricities could not help themselves and spent the money.  Seriously would you expect anything else, they are who they are.  That is one of the reasons why the bonds originally planned to mature in total in 2011 are still another ten years plus out.  As we noted in our original post on this subject that money was spent on other "power" needs and frankly some of those "power" needs where in our opinion real sketchy. So the bonds not having the needed funds to pay them off where rolled over into longer dated bonds and the Electricities crew and politicians in the member towns just kept on keeping on with nary a worry in the world.  The problems  arose when the higher power rates came into conflict with no new residents, no population growth, and the lack of economic development.  That lack of the aforementioned growth was and is BECAUSE the lack of growth meant that those higher rates could no longer be spread over an expanding base of ratepayers.  So the ugly cycle of higher rates and higher rates kept going since not only was their no growth but in some cases there was declining numbers of ratepayers to shoulder the burden.  Of course if the powers that be would be minded their knitting and paid off the bonds in the timely manner planned then they would be completely free of the bonds and their cost now.  But what would that crowd at Electricities do and where would their operating funds originate? Those agencies need a reason to exist.  They want to keep their cushy high paid positions.  So the longer the debt and power agency game can be kept going the better.  Talk about the ultimate middle man job well these are it. 

So now they will soon sit with several hundred million dollars of new Duke money in the bank and frankly we do not trust them with it and we think with good reason.  If the bonds could be paid off immediately we would rest easy. The smart move would be to find some trustee say an insurance company that would love to have a cool billion dollars or so and deposit it with them, collect some negotiated high interest,  and make a deal to get funds as needed to pay off the bonds. Hey Warren Buffett's little operation might be a good place, how about someone placing the call for starters? Anyway here we sit with all that money and wonder if the towns and Electricities will find some more "power" needs for the money?  And of course remember there is still that $500 million or so hanging out there that needs to be paid off, wonder if they can just let those bonds mature on schedule and rid us of all this debt.   The past being prologue and as a ratepayer I am worried and you should be to if you live in a member town.  Yes we know that the bonds left will likely be put into what might be called pre-refunding mode backed by US treasuries, but we still do not trust them as US Treasuries can be sold and money spent. 

There is one other issue that concerns us too and this is totally a town governance one.  Let's go back to those higher than high electric rates.   With those bonds being paid off and the debt going down the cost of electricity should follow.  Maybe even a nice double digit drop shortly after mid year 2015 since the rate decrease should be around 18%, oh wait maybe it is 16% since we gotta pay those folks at Electricities their cut . Well do not count on it yet, remember we are dealing with some bureaucrats and politicians here. The savings will be large as in over $200 million annually in interest costs alone plus several million more annually in related costs of being part owners of power plants. Of course politicians see all that lovely cash flow they have had all along and they think special projects and other such government expenditures and we best be worried as they may well not cut rates or cut rates much to keep more of the cash flow for their favored interests.  They might even lower the rates for large businesses or even new industry sweetener than allow residents to see a cut in rates.  Yeah I do not trust them.  The smart move would be for each town to dump the entire power structure on Duke, like make a call and make a deal, and be done with all this mess.  Yes we are talking power poles, power employees, and power bills for good, get out of what should be a private business all along. But do not expect that to happen either since we still got those pesky people at Electricities to pay and some politicians who like that cash flow and we all know nothing succeeds in keeping itself employed like agency bureaucrats and government employees. So we expect they will sign another 20 year deal with Duke and we all will be some better off, but not as much as other power buyers in other towns. 

So keep a sharp eye out and keep up with what is going on here in your power agency member towns as we are not out of the woods yet and frankly I expect this is far from over. Yeah I will say it again I do not trust them.